Wednesday, July 22, 2009

Dr. Davis on Taxes

The libertarian ideal is to do away with all taxes. However, recognizing that there will always be need for government (or at least for as long as people live in any proximity to each other) there must be a source of whatever funds are necessary. I propose the following measures as a means of initiating discussion on what should be taxed:

1. Short term capital gains (< 1 year) and ordinary dividends collected to be taxed as normal income
2. Long term capital gains and reinvested dividends and interest taxed at 10% below $75,000, as ordinary income for any in excess of 75,000 with these limits adjusted annually for inflation. For those disabled or retired, no tax up to $75,000, 5% above 75,000.
3. Individuals over age 80 exempt from tax on interest/dividends/capital gains.
4. A shift from tax on income to tax on consumption. Exemptions for necessities such as food and medical care, partial exemptions on shelter, clothing, energy/utilities to be determined by a determined level of what constitutes necessity versus luxury. Obviously this would be a complex process, but there are already examples in individual states that define, for example, foods that qualify as necessities versus luxuries such as snack foods.

Ultimately, reducing taxes is pointless without limiting government spending. Whether government takes resources as taxes or in the form of borrowing and inflation, the resources are taken. As the current economic crisis has spurred individuals to increased savings, we must encourage this trend, as money saved by an individual, whether invested in stocks and bonds or simply saved in a bank is ultimately reinvested in the economy, allowing growth at a pace determined by that saving. (There is, of course, one exception: money hoarded, whether buried or stuffed in a mattress, grows nothing.) Not all consumption is bad, but too much consumption in the present with too little saving to build for the future leads to disaster on both the individual and the national levels.

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